Fuelling global concerns about the US current account deficit (and current account deficits in general), Lehman Brothers has come up with some startling observations. It says the recent fiscal expansion across Organization of Economic Cooperation and Development countries is the largest in 30 years. The US and the UK are the main drivers but the euro area and Asia are also in deficit and work done in the 1990s to balance the books has been completely undone.
What is more worrying is that the current account is normally in balance at the start of a recovery but this time the US deficit was 5% of GDP at the outset. It’s difficult to imagine that these excesses can all be reined in, in an orderly and non-disruptive fashion, with the dollar doing all the work and the government doing nothing.
